A man walks into the Nexen building in downtown Calgary, Alberta, in this July 23, 2012 file photo. Canada admitted on October 4, 2012 that a Chinese bid for domestic oil company Nexen Inc raises difficult policy questions, but the government gave no sign it would bow to an opposition demand to veto the deal. (Todd Korol/Reuters)

A man walks into the Nexen building in downtown Calgary, Alberta, in this July 23, 2012 file photo. Canada admitted on October 4, 2012 that a Chinese bid for domestic oil company Nexen Inc raises difficult policy questions, but the government gave no sign it would bow to an opposition demand to veto the deal.(Todd Korol/Reuters)

The federal government extended the deadline for a decision on CNOOC Ltd.’s $15.1-billion bid to acquire Nexen Inc., as it reviews
security concerns and tries to fashion a policy that will guide future takeovers
by foreign state-owned companies.

In a statement Thursday, Industry Minister Christian Paradis stressed the delay is not unusual with a
transaction of such magnitude, but other ministers indicated Ottawa will use the
time to address some fundamental issues arising from the growing flow of
investment from companies controlled or influenced by foreign governments.

A Canada flag flies on Parliament Hill below the Peace Tower on Friday September 4, 2009.
The Canadian Press

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The extension – which was widely expected – comes as the government faces
controversy about another Chinese investment, involving China’s telecom giant Huawei. Ottawa has signalled it won’t allow
components from Huawei into its e-mail and phone
network.

The Shenzen firm, considered to have
close ties to Beijing, is struggling to address allegations from a U.S.
congressional committee that its telecom
equipment could enable spying by the Chinese state.

As well, several opinion polls have suggested Canadians are worried about an
influx Chinese state-owned companies gaining control of key resources, and
generally oppose the CNOOC-Nexen deal.

However, the deal has largely garnered support from the Calgary-based oil
industry and Alberta Premier Allison Redford, who has said the province requires
such transactions to bring much-needed foreign capital to develop the oil sands
and other resources.

Mr. Paradis said the CNOOC-Nexen deal is undergoing a “rigorous
review” and will be assessed on whether it represents a net benefit to Canada,
and whether CNOOC is doing business as a commercial entity rather than a policy
arm of the Chinese government.

“The required time will be taken to conduct a thorough and careful review of
this proposed investment,” he said.

CNOOC has promised to list its shares on the Toronto Stock Exchange and
establish Calgary as a head office for North American operations, which would
include Nexen and CNOOC’s $8-billion worth of properties in the
U.S., Canada and Trinidad and Tobago.

CNOOC has also promised to enhance Nexen’s capital spending in the oil sands over
the longer-term, though Ottawa may look for firmer commitments on that
issue.

Under the Investment Canada Act, Ottawa can extend the 45-day review process
by 30 days, with the possibility of another 30-day delay with the consent of the
applicant. The government recently imposed a similar delay in reviewing the
proposed $5.3-billion takeover of Calgary’s Progress Energy Resources Corp. by
the Malaysian state oil company Petronas.

A spokesman for CNOOC said the company does not comment on the regulatory
process.

Natural Resources Minister Joe Oliver said the government will use the time
to prepare a policy framework regarding investments by state-owned enterprises
in Canada, though he refused to discuss what those new guidelines would include.
Oil industry executives have urged Ottawa to make it clear that the country
needs strong domestic companies in key sectors such as the oil sands. And the
government may set some new hurdles for state-owned enterprises.

The head of the Canada-China Business Council applauded the extension, saying
it is important for Ottawa to be diligent in its review. “I don’t think the
Chinese are surprised that we ask those questions,” said Peter Kruyt, chairman of the council and vice-president
of Montreal-based Power Corp., which has a long history of doing business in
China.

“We need to know what is in the Canadian interest. We shouldn’t
be shy about working on that. I think it is something we don’t think hard enough
about.”

Public Safety Minister Vic Toews said the government will screen the CNOOC-Nexen deal for security issues, assuming it
passes the net benefit test.

However, analysts have said the CNOOC-Nexen deal raises few national security
concerns because Nexen’s
assets are predominantly outside the country, and its oil sands operations
represent a small percentage of the sector’s overall production and
reserves.

“I don’t think it’s plausible to think there is going to be a
national security threat,” Theodore Moran, a senior fellow with the
Washington-based Peterson Institute for International Economics.

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